Explain how exchange rates affect the level of aggregate economic activity and the price level. Use appropriate AS/AD diagrams to illustrate your answer.
What will be an ideal response?
A currency appreciation will shift AD inward and shift AS outward. Economists think that the AD effect is larger in magnitude than the AS effect. The net effect on the economy is lower inflation, lower real output, and higher unemployment. A currency depreciation will shift AD outward and shift AS inward. Assuming the AD effect is larger than the AS effect, the economy will experience higher inflation, higher real output, and lower unemployment.
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An externality occurs when ________
A) the quantity demanded of a good exceeds the quantity supplied B) the quantity supplied of a good exceeds the quantity demanded C) the government regulates production and consumption decisions D) an economic activity affects third parties not engaged in the activity
State some of the policies adopted by the U.S. government to check petroleum prices